Death and taxes, the two things you've always heard that you cannot escape.
In recent days, the residents of Decatur County have been receiving updated valuations for the properties that they own. These new statements of valuation have created conversations in my family. I am sure that the same is true for you. These new statements are a result of a county-wide valuation project that was undertaken by Decatur County. For many property owners, the value of the property that they own has increased significantly and they might be worried that the amount of money they pay in property tax will also increase. This is a reasonable concern, but it might not necessarily be the case.
Of note is that residents have received these new valuations during the budget season where tax entities like the city, county, and school are working to set their new budgets and therefore the new tax levy rates. It is important to know that the tax valuations that are being used for the current budget year are not these new values from the county-wide assessment. Those valuations will be used next spring when budget season rolls around again.
Property valuation is just one variable in the equation that is used to calculate a property tax bill.
The property tax equation really has 3 main variables. The first is the value of property. The second is the amount of dollars that a tax entity needs in order to provide necessary services. The third and final variable is the levy rate. Levy rate is calculated by dividing the valuation of property by 1000. Then the amount of requested dollars for a taxing entity are divided by the result of the previous calculation. So let's do a quick calculation for a city with variables similar to what you would find in Leon.
Let's say all of the property in our little town is valued at:
Let's say that in order to provide necessary services our little town needs:
Do the math:
33,000,000/1000 = 33,000
600,000/33,000 = $18.18 per thousand
When the value on any one individual property increases, that property owner should expect that their tax bill will increase. It's logical, but what if the value of all of the properties go up? Well, that is what is expected to happen now that the county-wide assessment is complete. How would that affect any one property? Good question. Let's see a hypothetical scenario where all of the property increased by an average of 25%. The key variable being that the taxing entity, i.e. the city, is able to hold costs steady.
After the blanket increase our $33,000,000 town is now has a new assessed value:
$33,000,000 x 1.25 = $41,250,000
If the city can keep cost down and request the same dollars:
41,250,000/1000 = 41,250
600,000/41,250 = $14.54 per thousand
What's the bill, Bill?
If you own a property that was valued at $100,000 and the increase is equal to the average county-wide value increase, you now own a property valued at $125,000. (Keep in mind that this scenario is hypothetical,)
At the previous valuation and levy prior to reassessment:
(100,000/1000) x $18.18 = $1,818.00
After reassessment, with the new valuation and levy:
(125,000/1000) x $14.54 = $1,817.50
As you can see, with the increase in property value in the case that I have presented, the tax bill for this hypothetical property owner did not increase. Of course, this exact situation is unlikely to be the case for any one property owner. In the real world the average is not the increase that each individual property owner will see in valuation. Some properties in the county likely lost value, while others experienced an increase higher than the county-wide average. This little math problem is only to illustrate that the increase that some owners have recently seen does not necessarily reflect a large increase in tax bill. The truth is nobody will know until budget time in the spring of 2024. At that time taxing entities will finally be able to calculate the necessary inputs for the calculation of tax bills.
In the future, I intend to bring some information to the conversation so that readers of this blog can better understand how the tax dollars that they pay are allocated for the services that your local government provides.